Tokyo Electric, Oji Paper to Pay Nippon Oil Record Fuel Prices

By Yuji Okada

July 28 (Bloomberg) -- Nippon Oil Corp., Japan's largest refiner, plans to increase fuel oil prices by as much as 28 percent to a record for buyers including Tokyo Electric Power Co. and Oji Paper Co. because of rising crude costs.

Customers will pay the higher prices in the three months to September, according to a notice sent by Nippon Oil and obtained by Bloomberg News. Tokyo Electric is Japan's biggest consumer of low-sulfur fuel oil.

Nippon Oil has been setting the nation's benchmark fuel oil price since 1970. Japan's 12 refiners including Idemitsu Kosan Co. will probably follow Nippon Oil's move and raise prices. Asian benchmark Dubai crude oil climbed to a record $141.33 a barrel on July 15, increasing the cost of producing fuel oil.

Tokyo Electric will pay Nippon Oil a record 101,870 yen a kiloliter ($977 a metric ton), 28.1 percent more than in the three months ended June, according to the notice. Oji Paper, the country's biggest high-sulfur fuel oil user, will pay 93,200 yen a kiloliter, up 26.6 percent from the previous quarter.

Nippon Oil sets preliminary prices for the two main buyers in the first month of each quarter. Final prices, calculated based on 75 percent of the company's crude oil import costs and 25 percent of Japan's bunker prices, are agreed later.

Low-sulfur fuel oil sold to Tokyo Electric, Asia's biggest power producer, has a maximum 0.3 percent sulfur content. High- sulfur fuel oil sold to Oji Paper has a maximum 3 percent sulfur content. The prices are preliminary and may be revised to adjust for changes in production costs.

To contact the reporter on this story: Yuji Okada in Tokyo at yokada6@bloomberg.net